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Tale of two towers

A year ago Hong Kong property kingpin Li Ka-shing surprised industry onlookers by offloading two of his commercial projects in Shanghai and Guangzhou.

Li explained that it was time to sell because “the flour had become more expensive than the bread”.

Wang Shi, chairman of Vanke, China’s largest property developer by market capitalisation, said at the time that Li’s decision sent a worrying signal, as he must have sensed more troubled times ahead.

“A successful businessman doesn’t sell at the peak of the market. That’s because peak by definition means whatever follows is going to be down. It is much easier to sell before prices have reached the top. After the prices have peaked, it is much more difficult to sell,” Wang told Tencent Finance.

But Cheng Yu-tung, another Hong Kong tycoon, seems to believe that Guangzhou commercial property has plenty of upside left. He recently unveiled the superstructure of the 530-metre Guangzhou Chow Tai Fook Financial Centre, also named East Tower. In an interview with Guangzhou Daily, Cheng declared that he will “lease, but not sell” the skyscraper when it is fully completed in 2016.

Located within the financial district, the East Tower has 116 storeys with 111 above ground. Analysts say no other tower is likely to surpass it (locally) for the foreseeable future, and it is the sixth highest building in the country (Ping An Finance Centre in Shenzhen, which should be finished next year, will hold the title as China’s tallest tower).

So why is Cheng so optimistic about the prospects for his tower? In October, during a meeting with Guangdong Governor Zhu Xiaodan, the chairman of the Hong Kong-based conglomerate New World Development explained that East Tower is being built as a “world-class landmark” and that it will attract many Fortune 500 companies to set up offices there.

But industry insiders say another reason why Cheng seems relaxed is because he acquired the land for a bargain price. In 2008, CTF Enterprises (the parent company of New World Development) was the sole bidder for the site. The auction took place during the peak of the global financial crisis, when many of Cheng’s rivals were cash-strapped or having trouble getting bank loans. CTF Enterprises won the auction by paying the minimum asking price of Rmb1.55 billion ($252 million), way below many of the estimates on what the plot could fetch.

Still, Guangzhou Daily reckons it won’t be easy for Cheng to find enough tenants to fill the super-tall building. Already, there is oversupply of Grade A office space in the city. Worse, several new buildings are expected to complete next year, putting more pressure on rents. Savills has reported that Grade A office rents in Guangzhou dropped 0.9% to Rmb153 per square metre in the third quarter of this year, for instance, compared with a year ago.

Others say that real picture is worse. “On the surface, the price range is still about Rmb150 per square metre. But what they don’t tell you is that many landlords are offering as much as six months rent-free, so in reality, it is a lot lower than what the statistics say,” Jian Guangguang, a property agent, told the Guangzhou Daily, adding that tenants which previously couldn’t afford top-tier offices have been upgrading because rents have been coming down.

Who are the main tenants of these super-tall buildings? According to property broker CBRE, the financial services sector is the largest client, occupying around 55% of Guangzhou’s rented skyscraper space. Business services and legal firms account for 16%, while technology and telecommunications sectors take up 11%.

In East Tower’s case, the main tenants announced so far are companies connected to CTF Enterprises. Grand Hyatt Hotels, which is operated by New World Development, will lease some of the top floors. And K11, its mall-cum-art concept, will be another major tenant, says 21CN Business Herald. One lure for other tenants may be the lifts. The Financial Times reports that they will be the world’s fastest, capable of climbing at 20 metres per second.

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